Why You Should Not Opt Out Of Your Pension
Pension Options Direct Blog
russ.myers@padfs.co.uk
March 27, 2022
Why You Should Not Opt Out Of Your Pension
Why You Should Not Opt Out Of Your Pension
Many people worry that they won’t have enough money to live on when they retire, and many people simply do not make enough time to plan their finances. A pension is a simple way to build up extra savings and ease worries about your retirement income.
Why You Should Not Opt Out Of Your Pension
What is auto-enrolment?
When you start a new job, you may be required to join your employer’s pension scheme. This is called auto-enrolment.
The auto-enrolment pension scheme is a wonderful thing. It enables you to save up money for retirement, or semi-retirement if you may no longer wish or able to work. As you can access your pension from the age of 55. It can be used to provide a financial safety net for your family after you pass away.
However, some employees may choose to opt out of this pension scheme. It’s true that opting out does mean that you’ll miss out on qualifying for any benefits and could affect your lifestyle in retirement.
Why You Should Not Opt Out Of Your Pension
Workplace Pension Scheme
You become eligible to be automatically enrolled into a pension when you turn 22 years old and earn over £10,000 per year.
By law, your employer must put money into a pension for you as long as you do not opt out. This can be seen as a pay rise! Employers will contribute 3% of your annual salary into the pension pot. The government will also put money into the pension pot by adding tax relief to it.
The contributions to your pension scheme are normally made up as follows. You pay 4 % of your income into the pension, your employer pays in 3% of your income and the government will pay 1% which is in the form of a tax rebate, therefore a total of 8% of your income is put into your pension.
Therefore, you can in affect be earning an additional 4% of your income if you are paying into a pension scheme.
Why You Should Not Opt Out Of Your Pension
Tax Relief
The government gives everyone tax relief on their pensions.
Your payslip will show you are making a 5% contribution but the tax you pay is less therefore you are in fact only paying 4%
So, in reality you are only paying 4% into your pension and with your employer paying 3% the government paying 1% you are only paying for half of you pension, the other half is a free benefit.
Why You Should Not Opt Out Of Your Pension
It’s never been easier to save for the future.
You need to be saving for retirement and a pension is one way to ensure that you’re putting money away for the future. If you are an employee all employers should be offering you a workplace pension. If you don’t have a pension at work, then you can set up your own personal pension scheme instead and still benefit from the government tax incentive. Personal Pension Plans enable you to grow your pension saving tax free in a similar way to ISA’s.
If you’re thinking of opting out of your pension or not saving into a Personal Pension, we suggest that you fully understand the implications before making a decision. Having a comfortable retirement needs some sort of pension provision and the longer you leave it the more difficult you will find it to build a sufficient size pension pot.
As always Pension Options Direct are happy to help with any pension related questions or enquires
Enhanced Annuities
Enhanced annuities work in the same way as a standard pension annuity but also consider your lifestyle and health conditions. If you qualify for an enhanced annuity you would expect it to provide more income for the rest of your life than a standard pension annuity would provide.
Lifetime Annuities
A lifetime pension annuity is designed to provide you with an income and is payable for the rest of your life as a minimum. The funds that you have saved into your pension pot are used to purchase an annuity either from your existing pension company or from a new pension income provider.
Fixed Term Annuities
A Fixed Term Annuity is a type of Guaranteed Drawdown product designed to allow you to access your pension in a more flexible manner than purchasing a set income for the remainder of your life which is what a lifetime pension annuity does. They provide a guaranteed return on your investment.
Flexi access Drawdown
Flexible Access Drawdown products provide a flexible way to take your pension and range from relatively low risk products with guaranteed returns to high-risk products investing in all manner of asset classes. Whilst providing flexibility they do not give a guaranteed income for the whole of life.
Releasing Tax Free Cash
When you are 55 or over you can access your pension and, if you wish, take a tax-free lump sum. You can then invest the remainder in a pension product and either take an income or keep it invested. You can normally take up to 25% of your investment tax free and use this money as you wish.
Tax Free Lump Sum
If your pension has not been crystalised (accessed previously) you can take a tax-free lump sum from the pension investment. This is normally in the form of a 25% tax free lump sum payment, but some types of pension schemes do have enhanced benefits and permit more than 25% to be taken.
State Pensions
The Basic State Pension is available to men born before 6th April 1951 and women born before 6th April 1953 and the New State Pension available to those born later. We have links to the Government information pages and the State Pension Age Calculator and a link to obtain your State Pension Forecast.
Equity Release
Is a way of taking some of the equity (investment wealth) built up in your property as tax-free cash to provide additional income in retirement or to pass over inheritance money to the family before dying, repay other mortgages or borrowing or to just spend on something you have always wanted.
PENSION OPTIONS DIRECT
What areas do we cover?
With our office in Ilminster we can provide face to face meetings for people in the Somerset area including Taunton and Yeovil. We are may also be able to arrange face to face meetings in the areas of Bridgwater, Glastonbury, Shepton Mallet and Wells areas.
We are happy to have video meetings with people and therefore can provide a visual meeting to anyone in the UK. We are happy to talk through your options over the phone regardless of your location, so we can discuss your needs. We also are very happy to communicate with you through email which many customers now prefer, we can therefore provide a full UK coverage.